A collection of often sceptical, always candid observations and insights on the US economy and large-cap equity markets. Readers have observed my style and perspective to be that "the emperor has no clothes," and that is reasonably accurate.
Postings reflect my philosophies and perspectives on economics, business and politics.

Tuesday, April 04, 2006

UAL "Best Practices"

The Wall Street Journal carried a rather breezy piece last week describing how United Air Lines is now sending its ramp crews to "Nascar U" for training to work as a team in turning around a race car in the pits. The idea is to discover and train teams in "best practices" for turning airliners around on the gate ramps. Incredibly, according to the article, UAL training for this has always been "optional," and the FAA has been displeased to find procedural differences among cities in which UAL operates.What strikes me as so odd about this story are the following.First, wouldn't you think a major airline would have studied, benchmarked and applied best practices to something as crucial and frequent as airliner serving at the gate by now? Hasn't UAL been through at least one bancruptcy, and several CEOs, trying to become more financially successful? Would you not think that functions like this would have been among the first to have been studied, improved and standardized by a competent management?I worked for the predecessor to Accenture, Ltd, the old Andersen Consulting, in the 1990s. Even back then, they were flogging "best practices" mercilessly in virtually every sector and function they could cover. How could an airline as large as UAL not have been besieged by Andersen-cum-Accenture, and/or its many competitors, to submit something so key as operationally turning airliners around on the ground between flights, to "best practices" studies?Second, what does this WSJ story indicate about the ability of a large, modern corporation to simply get the basics right in its operations? How could such sloppy, undisciplined management and implementation exist in one of the largest companies in such a visible sector?My partner and I discussed this at length a few days ago, as we typically talk about noteworthy business news of the past week after playing squash. What emerged was conceptual framework I am confident you won't find at any leading business school (and we each matriculated at one of the best). The initial element of it is as follows.Essentially, I think that widespread mediocrity is a necessary consequence of a successful capitalistic economic system. As a capitalistic system allows innovative leaders to emerge and succeed with their enterprises, those enterprises paradoxically employ many mediocre people who, by themselves, would have difficulty creating as much value alone as they do when employed by a successful capitalist.To see this more clearly, think of a similar situation from our species' past. When we were primitive hunters, don't you think the best hunter, and his family, were better-fed and bred larger families, than other hunters with less skill? Back then, the lesser-skilled would suffer more drastic consequences such as starvation, and lack of genetic survival. Perhaps even then, the less-skilled homo sapiens followed the more-skilled, who might have consequentially emerged as early leaders of such primitive "enterprises."However, with the rise of civilized societies, and capitalism, people who may not have even survived in an earlier time now can find average jobs, wear suits to work, and live "normal" lives. When you pack large, modern companies with a preponderance of these "followers," you're not going to get many nimble, consistently-superior-performing companies.Instead, I think you're going to get a lot of UALs. Companies in which the best ideas don't propagate throughout the firm. And this will be the norm, because, thanks to modern civilization, there is a viable safety net for the average person. It's my guess that, in a "knowledge" economy, the value foregone by having mediocre people in most positions is probably far greater than it is in a primarily industrial economy.Add a hefty dose of our current technological change, and it's a wonder that even the best CEOs can overcome this kind of inertia. Even with an army of consultants begging to study and implement "best practices." The consultants will study and leave, but the mediocre employees remain to function "normally."This insight has led me to several conclusions that I will be discussing in coming posts. Suffice to say, they reinforce the basic conclusions of the research that drives my equity portfolio management process: consistently superior performance is rare and fleeting, even for the best-led companies in the most opportune product/markets. And consistent success only leads to longer and longer odds of continuing that success, no matter how good the leadership of the company.

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About Me

A well-educated veteran of US corporate strategy positions & hedge fund management, as well as research, product development and project work in consulting, strategy and equity management. Academic background in marketing, strategy, statistics and economics.
Currently own Performance Research Associates, LLC, through which I am involved in proprietary equity and equity options investment management.